A Member of Pat McKeough’s Inner Circle recently asked for his advice on Capstone Copper Corp, a copper mining company focused on operations across both American continents.
Pat likes the firm’s strong production growth outlook and cost reduction initiatives. The company’s strategic asset portfolio across the Americas provides geographical diversification and multiple avenues for growth. However, its two mines in Chile add political risk. As well, there are also risks due to the cyclical nature of copper prices and potential global economic slowdowns.
Capstone Copper Corp. (Symbol CS on Toronto; www.capstonecopper.com), is an Americas-focused copper mining company headquartered in Vancouver, Canada.
Capstone owns and operates the Pinto Valley copper mine in Arizona, the Cozamin copper-silver mine in Zacatecas, Mexico, the Mantos Blancos copper-silver mine in the Antofagasta region of Chile, and 70% of the Mantoverde copper-gold mine in Chile’s Atacama region.
In 2023, the mining firm completed its flagship Mantoverde mine. It started producing saleable metal in June 2024. Production from Mantoverde helped lift Capstone’s overall 2024 production to a record 184,458 tonnes of copper. That was up 12% from 2023.
In the three months ended September 30, 2024, Capstone’s revenue rose 30.1%, to $419.4 million from $322.2 million a year earlier. (All figures except share price and market cap in U.S. dollars.) Revenue was higher due to a 17.9% decrease in copper sales, to 47,460 tonnes from 40,250 tonnes. Selling prices also rose.
Cash flow in the quarter jumped 97.5%, to $116.9 million, or $0.15 a share, from $59.2 million, or $0.09.
The company’s long-term debt of $757.5 million U.S. is a low 16.6% of its market cap; it also held cash of $138.6 million on September 30, 2024.
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Capstone Copper: Positive copper forecasts support the company’s outlook
After dropping to as low as $2.17 U.S. per pound in mid-March 2020, copper rose steadily to a record price of $5.02 on March 6, 2022. Fears of supply chain disruptions and historically low stockpiles amid rising copper demand drove prices higher.
However, the price of copper has since pulled back to $4.22. That’s mostly on concerns that high interest rates will continue to slow global economies. As well, investors have worried about the pace of China’s economic recovery.
Longer term, the outlook for copper looks positive. From a supply standpoint, due to a lack of new mines, long-term copper shortages could result. As economies recover, they will push up demand—and that includes demand from segments such as electric vehicles (EVs) and green-energy related operations.
Copper market fundamentals suggest continuing strength. The copper supply/demand imbalance also presents an investment opportunity for those interested in copper-mining stocks.
Capstone’s outlook is positive, and the stock trades at a low 4.7 times the forecast 2025 cash flow of $1.27 U.S. a share.
Chile is currently a mining-friendly jurisdiction, but it has a history of political volatility. The company faces added risk in having two of its properties there. Capstone will, of course, also need copper prices to remain strong.
Recommendation in Pat’s Inner Circle: Capstone Copper Corp. is a hold, but only for aggressive investors.
